2020 (8) TMI 80 - AT - Service Tax

Reverse charge mechanism - Banking other financial services - recipient of services or not - services provided by the Foreign Banks situated outside India - extended period of limitation - October, 2010 to March, 2015 - whether the Foreign Banks have provided any service of transfer/exchange of documents and transfer of money relating to exports made by the exporters in India, who receive money through the Appellant Bank against the said export? HELD THAT - The nature of the transactions that take place when an exporter in India exports goods to an importer outside India has been described in the preceding paragraphs. The Appellant Bank provides service to the exporters by sending the export documents to the bank of the importer abroad and collects payment. Thus, the role of the Appellant Bank is to settle the payment relating to export/import of trade. For performance of such activity, the Appellant Bank charges service tax to the exporters and there is no dispute about the said charges in this Appeal. The Appellant Bank cannot be said to be the recipient of service for the activities undertaken by the Foreign Banks situated outside India, the charges for which are deducted at source on the export bill. The Appellant Bank merely acts on behalf of the Indian exporter and facilitates the service. The Appellant Bank, therefore, would not be liable to pay service tax under the reverse charge mechanism. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of sub-section (1) of section 67. What needs to be noted is that each of these refer to where the provision of service is for a consideration , whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a consideration for the provision of such service. Explanation to sub-section (1) of section 67 defines consideration to include any amount that is payable for the taxable services provided or to be provided, or any reimbursable expenditure, or any amount retained by the lottery distributor or selling agent. It is clear from the aforesaid definition of consideration that only an amount that is payable for the taxable service will be considered as consideration - The Appellant Bank has not paid any consideration to the Foreign Bank as is clear from the factual position emerging out of the export trade and, therefore, also the Appellant Bank cannot be said to be the recipient of any service by the Foreign Bank. The Indian Bank is not the recipient of any service rendered by the Foreign Bank and, therefore, there is no liability to pay service tax on a reverse charge mechanism. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the Foreign Banks provided any service to the Appellant Bank.
2. Whether the Appellant Bank is liable to pay service tax under the reverse charge mechanism.
3. Whether the extended period for the issue of a show cause notice was valid.
4. Whether the Appellant Bank was the recipient of the service provided by the Foreign Bank.

Issue-Wise Detailed Analysis:

1. Whether the Foreign Banks provided any service to the Appellant Bank:
The Appellant Bank facilitates the settlement of payments related to the export of goods by sending export documents to the importer's bank abroad and collecting payments. The Appellant Bank charges a commission/fee for these services and pays service tax on such services provided to the exporter. The dispute is regarding the charges collected by the Foreign Bank or the Foreign Intermediary Bank. The Appellant Bank contended that it did not receive any service from the Foreign Bank and merely acted on behalf of the Indian exporter to facilitate the service. The Commissioner, however, held that the services provided by the Foreign Banks were received by the Appellant Bank and thus, service tax was payable under the reverse charge mechanism.

2. Whether the Appellant Bank is liable to pay service tax under the reverse charge mechanism:
The Commissioner confirmed the demand of service tax on the Appellant Bank under the reverse charge mechanism for services provided by Foreign Banks. However, the Tribunal found that the Appellant Bank did not receive any service from the Foreign Bank. The Appellant Bank only facilitated the service as a mediator between the Indian exporter and the Foreign Bank. Therefore, the Appellant Bank was not liable to pay service tax under the reverse charge mechanism.

3. Whether the extended period for the issue of a show cause notice was valid:
The Appellant Bank argued that the show cause notice issued on February 08, 2016, for the period from October 01, 2010, to March 31, 2015, was time-barred as there was no evidence of willful suppression on its part. The Commissioner invoked the extended period under the proviso to section 73(1) of the Finance Act. The Tribunal did not specifically address the validity of the extended period, but since the primary demand was set aside, the issue of the extended period became moot.

4. Whether the Appellant Bank was the recipient of the service provided by the Foreign Bank:
The Tribunal held that the Appellant Bank was not the recipient of the service provided by the Foreign Bank. The Foreign Bank provided services to the importers/exporters, and the charges were deducted from the export proceeds. The Appellant Bank merely facilitated the transaction and did not pay any consideration to the Foreign Bank. Therefore, the Appellant Bank could not be considered the recipient of the service, and no service tax was payable under the reverse charge mechanism.

Conclusion:
The Tribunal concluded that the Appellant Bank was not liable to pay service tax under the reverse charge mechanism as it was not the recipient of the service provided by the Foreign Bank. The order dated March 30, 2017, passed by the Commissioner was set aside, and the appeal was allowed.

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